The Tax Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Bill 2013 was passed by the House of Reps today on Thur 16.5.2013 without amendment and was then introduced in the Senate where debate was adjourned. The Bill proposes amendments to Pt IVA of the ITAA 1936 to ensure its effective operation as the income tax general anti-avoidance provision. It also contains amendments to “modernise Australia’s domestic transfer pricing rules”.
[LTN 93, 16/5]
Transcript Released
The transcript has been released of the Senate Economics Legislation Committee hearing on 30 April 2013 into the Tax Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Bill 2013.
The Committee heard from representatives from Treasury and the ATO, and from bodies such as the ICAA, Australian Bankers’ Association (ABA), The Tax Institute, Law Council of Australia, and Westpac Banking Corporation.
Concerns were raised about the Commissioner’s proposed open-ended discretion to increase overall taxable income of a taxpayer rather than adjusting specific underlying transactions.
Other issues raised at the hearing included:
- The ABA said it supported the introduction of proposed Subdiv 815-C but recommended amendments to ensure the objects of the division can be fully met. The ABA said its proposed amendments would create a single, comprehensive set of rules to allocate profits to PEs for all purposes of the Australian income tax law. This, it said, would address the currently unclear operation of the general income law to resolve current uncertainties and eliminate the need to allocate specific items of income, expenditure and losses to PEs which are imposed on Australian banks under the arm’s length profits rule and deal clearly with the question of source of income in determining the arm’s length profits for permanent establishment outside Australia.
- The Tax Institute said its concerns with the Bill were largely that the Commissioner’s powers would be wider than necessary and were unnecessary to protect the integrity of the tax system. The Institute believed that the ramifications for taxpayer uncertainty, especially for SMEs, would be unfortunate, especially for those taxpayers that have done nothing wrong when objectively viewed.
- The ICAA considered there was “no demonstrable need” for the proposed Pt IVA amendments, and the extension carried the risk of adversely impacting economic activity. The Institute also expressed concerns about the transfer pricing amendments eg re the reconstruction powers, the de minimis carve out relating to penalties, the absence of a total carve out for SMEs.
The Committee is due to report by 14 May 2013.
[LTN 81, 1/5/13]
Committee recommends passing the Bill
The Senate Economics Legislation Committee on Tue 14.5.2013, tabled its report on Tax Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Bill 2013 and recommended that the Bill be passed by the Senate subject to 5 recommendations concerning the proposed amendments to modernise the transfer pricing provisions.
In relation to Pt IVA provisions, the Committee said it believed the amendments were an appropriate and measured response to exposed weaknesses in the operation of Pt IVA. The Committee said it was not convinced by arguments that the amendments represented an overreaction to recent court decisions. The Committee also agreed with Treasury that, in determining whether an alternative postulate was a reasonable alternative to a scheme, it was necessary to disregard tax consequences.
In relation to the transfer pricing amendments, the Committee noted concerns regarding the impact of the record-keeping requirements on small and medium enterprises. Accordingly, the Committee recommended that the Government consider expanding its efforts to provide guidance to taxpayers so that they can make an informed judgment about the level of risk they are exposed to in terms of related party dealings. The Committee also noted concerns about the adequacy of the de minimis threshold that will apply to the application of penalties. In this regard, the Committee recommended that the Government continue to consult with businesses, and in particular small and medium enterprises, regarding the compliance impact of the transfer pricing amendments.
[LTN 92, 15/5/13]